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China catching up as gold demand in India falls 33%

India’s position as the largest market for gold is under threat as China is fast emerging as a major market for the yellow metal.

Written by MADHUSUDAN SAHOO | Mumbai | Published: February 19, 2010 1:23 am

India’s position as the largest market for gold is under threat as China is fast emerging as a major market for the yellow metal. While gold demand in India fell by 33 per cent to 480 tonnes in 2009 from 712.6 tonnes the previous year,demand in China rose 9 per cent to 427.5 tonnes from 392.7 tonnes in 2008.

However,demand is picking up in India if the October-December period is any indication. “With weak economic conditions and high gold prices,the country’s gold demand has gone down 33 per cent. Although it was showing a downward trend till the third quarter of 2009,investors’ appetite has pushed it forward and recovered dramatically in the last quarter of 2009. Also,the tonnage offtake has gone up 17 per cent to 180.7 tonnes in the October-December quarter from 154.4 tonnes in the previous quarter in the same year,” said a report by the World Gold Council (WGC).

The Council said mainland China’s full-year record was impressive,with a 6 per cent rise in jewellery demand (the only country to experience an improvement in annual jewellery off-take) and 22 per cent growth in net retail investment,translating to an increase in total consumer demand of 9 per cent over 2008.

In India,on an annual basis,jewellery demand in 2009 totalled 405.8 tonnes,down 19 per cent when compared with 501.6 tonnes in 2008. While this is the weakest result since 1995,it is worth stressing yet again the impact of the very weak Q1 offtake.

“Despite this resurgence in jewellery buying,budgetary pressures continue to act as a significant constraint. Budgets have been squeezed by the higher gold price and rising inflation,resulting in lower average jewellery weights. In particular,the rise in food prices,which form a core part of expenditure,has been severe. Given this environment,one could say that the improvement in demand has been encouraging,” the WGC said.

Said WGC managing director (Indian Sub-Continent) Ajay Mitra,“Apart from the performance in the Q4 alone,other quarters have seen a change in the mix of investors as new players with a shorter time horizon. They have come onto the market adding to the overall demand for gold. Budget constraints have continued to have a dampening impact on investment sectors as incomes have not kept pace with the rise in the gold price.”

“The overall outlook for India still remains cautious due to high prices and budget constraints. While the purchases by the Reserve Bank of India had an important impact on sentiment in fourth quarter,it is unclear how long this optimism will persist in a price sensitive market,” said the report.

Vinod Hayagriv,chairman,All India Gems & Jewellery Trade Federation,said the growth of the industry would continue to be bullish despite several bottlenecks including price factor and demand-supply mismatch. “The investment demand has ample space for our investors and we hope the gems and jewellery trade will grow beyond the Rs 1,25,000 crore level in the years to come. What is important is to protect the small jewellery businessman as well as small enterprises,which are facing severe competition and margin squeeze,” he said.

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